Inverse ETFs are usually constructed from other short-selling instruments, so the core issue would remain there: there are not enough short-selling mechanisms.

Regarding the avoidance of collateral, that’ll apply to the reverse fund buyers, but it will remain an issue for those instrument in the fund. In order to be able to bet on the losses of a crypto without using collateral you’d need to find a mechanism that doesn’t require lending/credit, and by definition short positions require borrowing.

Inverse ETFs are usually constructed from other short-selling instruments, so the core issue would remain there: there are not enough short-selling mechanisms.

True existing Inverse ETFs are simply packaged up shorts. Though the implementation I was suggesting wouldn’t be built from shorts but rather from an on-chain monetary policy implementation like Basecoin has. Basecoin’s system uses multiple tokens (coins, bonds, and shares) to establish a peg. Since they don’t rely on a physical reserve (like Tether), in theory they could peg their coin to any arbitrary value (USD, Gold, or Inverse ETH).

bpolania:

you’d need to find a mechanism that doesn’t require lending/credit

In Basecoin’s system, when the price falls below the peg Bascoins can be exchanged for bonds (reducing supply/ increasing price). These bonds can then be reclaimed w/ interest when the price rises above the peg (increasing supply/ decreasing price). So lending/borrowing would be critical to this system. The difference is that the ordinary unsophisticated retail investor wouldn’t have to be bondholders (i.e. deal with collateral/lending/borrowing) to take advantage of the inverse price.

Well, this is interesting. In theory, there could be a bond-token, that’d be some kind of IOU for bonds, so instead of lending tokens, the investors borrows this IOU, this way losses are capped at the stability price (S). Wins and losses will be limited, and I’m not sure if it’d work at all, but it may be.

I didn’t read all of your post, but I very much agree that one should be able to short any liquid, fungible commodity, not just during token sales. As an example, I’d short the petro token. I tweeted about this recently.

@La__Cuen @VladZamfir @Codiox If I could short sell Petro futures, CFDs, etc., I would. Oil has no future, or it needs to not be in a future sustainable world. Unfortunately Venezuala made some bad policy decisions by putting too many eggs into oil.

Yep, options would be simplest. CFDs are similar to options and should be fairly simple to implement. With options you just have a buyer or a seller, while with CFDs and futures you need both, so you’d need an exchange or marketplace like localethereum.com. Although with options you still need a way to actually execute the option which could be done on an exchange, but there is just no counterparty to the trade.

As others have pointed out there are other derivatives that are more complicated that have been implemented in non-crypto world as well as prediction markets, and others that AFAIK haven’t been implemented like inverse instruments.

When you have a counterparty they have to take on the potential risks and rewards, which retail investors and institutional investors may not want to do given the volatility of cryptocurrencies.

There are others who may buy up a lot of a security then sell it, e.g. as done with George Soros and the pound. This then has a flow on effect of others reacting to the price change. But to have this effect you need a lot of capital. However, AIUI cryptocurrencies are more sensitive to this effect as there is liquidity can dry up if you sell too much, which happened with the GDAX flash crash. Then orders are triggered which causes much more capital to be sold. Omega One is looking to provide a solution for this.